Volkswagen had a tough go of things last year. The company’s sales fell by 10 percent in China, arguably its most important. Its other stronghold, Europe, was flat, with a shrinking overall car market that led to VW Group sales falling by 0.1%. This strained the company’s finances, eventually forcing the company to shed 35,000 jobs over the forthcoming years.
The bright spot in all of this was the company’s performance in the Americas. South American sales grew 15%, while North American sales grew 6%, underlined by incredible 15.2% growth for the VW brand in the U.S. After decades of trying to crack the U.S., amid brutal competition elsewhere, things were looking up for Volkswagen.
Now, tariffs may blow all of that away.
The VW plant in Puebla, Mexico.
Photo by: Volkswagen
A recent report from the automotive data firm Jato Dynamics found that 44% of Volkswagen Group vehicles sold in the U.S. are made in Mexico. Now, with the Trump administration imposing a 25% tariff on goods from Mexico and Canada, those products are at risk.
“Volkswagen Group is the most exposed carmaker to the tariffs on Mexico,” JATO Global Analyst Felipe Munoz told InsideEVs.
That’s a concern in and of itself. It will be incredibly hard to deal with 44% of the company’s products suddenly being 25% more expensive. But it piles onto a load of existing problems. Volkswagen is under pressure in China and dealing with a home market that appears to be shrinking. And, Munoz noted, the U.S. is not a big market for the Volkswagen brand already. It may not make as many cars in Mexico as, say, General Motors, but those cars represent an outsized proportion of its overall U.S. business.
It’s a tough break for the original “we plan to go all-electric” automaker. VW has been struggling with that plan as of late, dealing with delays to crucial new EVs, an uncertain market, headaches with Chinese competitors in Europe and problems creating the software-defined EVs of tomorrow. It’s why the VW Group is partnering with American EV startup Rivian on future architectures. But big hits to its bottom line right now, and uncertainty in such a crucial market, could freeze out many of those future plans.
The company does make some cars in the U.S. Asked about the proposed tariffs, a spokesperson noted that the ID.4 electric crossover is built in Chattanooga, Tennessee. So are the Atlas and Atlas Cross Sport, VW’s largest SUVs.
But some of the VW Group’s highest-volume vehicles are made in Mexico: The Audi Q5, VW Tiguan, VW Taos and VW Jetta. Pretty much everything else the company sells here is built in Europe, which Trump is also threatening with steep import duties. If those come to pass, it’s going to be a hard, hard road for VW.
Photo by: Volkswagen
The VW ID.4 is built in Tennessee, so it should be heavily impacted by tariffs.
“This is not just a problem, but it’s an additional problem they have, because today they are dealing with the European market that doesn’t grow anymore. Actually, it’s decreasing its size, and more competitors are coming from China,” Munoz said.
“And [VW’s] main problem is China, where they led for years, and now their products are not appealing anymore, and it seems that the Chinese consumer doesn’t like the foreign brands anymore,” he added. “China was its biggest source of revenue and profit, and it’s not the case anymore.”
With no more fat margins in China and no more growth in Europe, VW needs the U.S. market now more than ever. The tariffs are arriving at the worst possible moment for the company. So the company has to do two things. First, it, like the rest of us, has to find out whether these tariffs are a temporary bargaining chip or a sustained feature of U.S. policy. If they are here to stay, and coming for European goods next, it needs to dramatically shift its plans.
“They have one plant in the US. They are already producing an electric car and two big SUVs. Leaving the U.S. is not an option, in my opinion,” Munoz said. “So what I think is going to happen is that they are going to increase their presence in the U.S. through more production. Porsche is a candidate for U.S. production. I think the Cayenne and Macan, the SUVs from Porsche, are a perfect match to be produced in the U.S.”
Photo by: Porsche
Yet neither spinning up a new factory, nor dramatically expanding Chattanooga will be easy, or quick. A spokesperson for Volkswagen did not answer any of my questions about the potential for expansion, or how the tariffs may affect the business.
The company will have to make hard choices, and perhaps shift its mix toward its most profitable products, even if that means cutting volumes. Any shifts like this are bound to impact the company’s ability to and interest in launching more EVs for the U.S. market, and with such low volume expectations I can’t imagine the ID. Buzz will be a candidate for local production. So if these tariffs stick, expect the future of Volkswagen in America to be quite different.
That’s still a big “if.” The stock market is tumbling over trade war expansion concerns. Other countries are retaliating. CEOs and big businesses are up in arms. Any payoff from relocating factories will be years out, too, so it may be hard to get the public to support tariffs that drive up prices now in return for potential jobs years from now.
One thing’s for certain, though. While no automaker will make it through a trade war unscathed, Volkswagen faces more challenges than most.
Contact the author: [email protected].
